The recent crash could be the final shake before BTC resumes its bullish trend

Bitcoin (BTC) price saw a rapid drop to $ 42,000 over the weekend, followed by a strong and steady rally of $ 49,000. The decline was due to the cascading liquidation of long positions. Traders lost 58,202 BTC and this is the second major liquidation event of 2021.

At the same time, the market structure of BTC has been showing a long consolidation phase below the important macro resistance level of 1.618 Fib since the second quarter of 2021. There are arguments that this is Bitcoin’s final shake before the start of the next compelling upward wave. However, when comparing the current fractal to previous BTC cycles, there are some similarities as well as structural discrepancies.

The data set will be dissolved in 2021

Bitcoin’s decline to as low as $ 42,000 was driven by mass liquidations of long positions. On-chain analyst @TXMCtrades tweeted a chart showing a one-day change in open interest for the full year of 2021.

The source: Twitter

It turns out that on December 4th traders lost a total of 58,202 BTC due to the liquidation of their positions. This is the second largest event of the year, shortly after the crash on May 19, 2021 when up to 79,244 BTC was lost in just one day.

If we look at the change in the open interest chart from December 3rd to 4th, we see the extent of these liquidations. It turns out that traders’ overall position was down $ 4.3 billion in a single day. This is a reduction of up to 20.5% – from $ 20.9 billion to $ 16.6 billion.

The source: Glass knot

The consequence of such a dramatic event is an immediate change in the funding rate of the perpetual futures contract. On-chain analyst @DylanLeClair tweeted a chart illustrating this shift. Due to rallies in the last 4 months, starting in August 2021, traders with long positions usually have to pay to hold their positions (green bars).

The source: Twitter

On December 4th there was a drastic change and the funding rate fell to around -0.03%. This means that traders with short positions will have to pay to hold their positions. This is the lowest value since July 2021.

Bitcoin’s last shakeout?

The above data suggests that many market participants did not expect such a drastic decline. As early as November 2021, top traders were forecasting a price of around USD 98,000, so the market sentiment is clearly bullish. This sentiment is supported by historical data showing that November and December are typically bullish months in the market.

Despite the lack of parabolic upward movements, there are many arguments in favor of continuing the bull market. These are in line with the Bitcoin long cycle hypothesis and the possibility of a peak in 2022.

One of them was announced yesterday by analyst @ TechDev_52 on Twitter. He compared the technical aspects of the fractal structure of the current cycle and the two previous cycles. In either case, the interesting stage is when price hits macro resistance on the external fib retracement line at 1.618, which measures from the top of the previous uptrend to the bottom of the next.

BTC / USDT weekly chart | Source: TradingView

In any event, we are seeing several months of consolidation below the 1.618 Fib level. In the previous two cycles it ended with a breakout above this resistance and a parabolic rise to a new ATH. Interestingly, the correction always approaches the 1,272 external fib retracement level. This was followed by a strong breakthrough above the downtrend line (yellow line) and this was subsequently confirmed as support (back test).

However, the most noticeable thing against the backdrop of the weekend crash was the white horizontal line visible on all charts. It marks a post-breakout swing low that had ricocheted off this line in previous fractals. It did so shortly before a break above the 1.618 external fib retracement macro resistance.

Distortion in structure

Here, however, @ TechDev_52 indicated “a deviation in the structure”. The white line of the previous top has been broken. Additionally, the price was unable to maintain the bull market support band formed by the 20-week MA and 21-week EMA. Historically, this has often been a sign of a turnaround. Despite these bearish signals, the analyst suggests that price has bounced off the 50-week MA that held BTC prices after the May crash.

“This cycle respected the 50 W SMA, just like the last cycle respected the 20 W SMA.”

If the fractal structure persists, despite some deviations, it will likely be Bitcoin’s final shake before the uptrend resumes. To do this, however, the price must recapture the 1.618 Fib level near USD 61,500 and confirm it as support.

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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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